Carl Icahn Is Right

Is Motorola (NYSE: MOT  ) headed higher, or lower? That's the question we ask when we evaluate insider buying and selling. We ask because how executives spend their paychecks is often a reflection of what they think of their companies' prospects.

Of course, not all buys are equal. According to two decades worth of research from Dr. H. Nejat Seyhun compiled in his book Investment Intelligence from Insider Trading, buying is most predictive when it (a) comes from the CEO or other top-level executive, and (b) it's performed in bulk. Seyhun found buys from 10,000 to 100,000 shares to be most informative.

How do Motorola's managers measure up against Seyhun's benchmarks over the past year? See for yourself:

Insider Rating

Bullish

Large buys at prices near today's, all of which were made by activist investor Carl Icahn.

Business Description One of the top providers of mobile phones and other telecommunications gear.
Recent Price $7.82
Motley Fool CAPS Stars (Out of 5) **
Percentage of Shares Owned by Insiders 0.26%
Net Buying (Selling)* $231.6 million
Latest Buyer (% Increase)

Carl Icahn, 10% owner

15,161,662 shares at $7.98 apiece on Nov. 2, 2010

(Increased direct holdings by 6%.)

Latest Seller (% Decrease)

Eugene Delaney, EVP, Motorola Solutions

12,700 shares at $7.88 apiece on Aug. 6

(Reduced direct holdings by 2%.)

Competitors

Apple (Nasdaq: AAPL  )

Nokia (NYSE: NOK  )

Research In Motion (Nasdaq: RIMM  )

Sources Form 4 Oracle, Capital IQ, and Motley Fool CAPS. (Data current as of Nov. 27.)

*Open market sales and purchases only.

What we're tracking here, and why
Insider buying data can be confusing. Here, I'm concentrating only on buying and selling conducted in the open market. With most of these transactions, insiders control the timing. Other times they're buying or selling under the purview of a 10b5-1 plan. Either way, personal holdings are being bought and sold.

Those personal holdings matter the most -- they're the shares executives hold for investment, rather than compensation. Employee stock options are different; they're compensatory in the purest sense. I've stripped out options-related buying and selling from the calculations you see above.

The Foolish view: Bullish
Should you ever follow a superstar investor into a stock? I suppose it depends. Following Warren Buffett's public moves over the years would have brought you riches. You might say the same about Peter Lynch and Seth Klarman, among others.

Then there's Carl Icahn. No doubt Icahn has done well, but he's had his share of misses in recent years. Remember it was Icahn who bet big on Yahoo! (Nasdaq: YHOO  ) in the hope of a sale that never came. Now, he's betting on Motorola.

Over the past year, Icahn's fund has spent nearly $232 million on shares of the mobile phone pioneer. Capital IQ sets his ownership interest at 11.3% of the shares outstanding.

To be fair, Icahn has pursued Motorola for years. Nevertheless, he has good reason to like the stock today. Motorola is a fierce smartphone competitor thanks to the success of its Droid line of handsets. The latest, the Droid 2 Global, is impressively designed to run on either GSM or CDMA networks. It's the sort of innovation that Fools love.

"I think that Droid phones will give them a boost ... The smartphone market is overcrowded, and competition is fierce and will cut into margins. Overall, though, this stock should be trading above $10 in less [than] a year," CAPS All-Star investor Hotpicks101 wrote last month.

I agree. Shares of Motorola trade for 15 times next year's estimated normalized earnings, which are expected to grow more than 40%. That's too cheap a price, especially if you believe the Droid product line represents a long-term growth opportunity.

Now it's your turn to weigh in. Do you like Motorola at these levels? Log into Motley Fool CAPS today and tell us how you would rate the stock. You can also add it to your watchlist.

And if you want me to take a Foolish peek at the insider action of your favorite stock, email me here, reply to me on Twitter, or use the comments box below. I'll write this column as often as you, our readers, demand.

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Fool contributor Tim Beyers is a member of the Motley Fool Rule Breakers stock-picking team. He had stock and options positions in Apple at the time of publication. Check out Tim's portfolio holdings and Foolish writings, or connect with him on Twitter as @milehighfool. You can also get his insights delivered directly to your RSS reader. We Fools may not all hold the same opinions, but we all believe that considering a diverse range of insights makes us better investors. The Motley Fool is also on Twitter as @TheMotleyFool. Its disclosure policy has its eye on you.


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Comments from our Foolish Readers

Help us keep this a respectfully Foolish area! This is a place for our readers to discuss, debate, and learn more about the Foolish investing topic you read about above. Help us keep it clean and safe. If you believe a comment is abusive or otherwise violates our Fool's Rules, please report it via the Report this Comment Report this Comment icon found on every comment.

  • Report this Comment On November 30, 2010, at 2:53 PM, jargonsays wrote:

    I think Mr. Icahn will realize his big mistake when iphone comes to verizon. Droid owners that I know are very disappointed with their motorola handsets.

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